The Dow Jones industrial average rose 35.7 points, or 0.32%, to 11,097.55. The broader Standard & Poor's 500 index touched its highest level since May 2001, finishing up 4.69 points, or 0.36%, to 1,294.12. The tech-heavy Nasdaq composite index climbed 20.14 points, or 0.88%, to 2,307.18.

Some analysts say a tightening job market has them bracing for higher inflation and continued interest-rate hikes. "The Fed may end up being on the job longer than we originally thought," says Ed Keon, senior vice president and director of quantititative research with Prudential.

Investors took heart in some solid earnings news Monday, as the season trickled to a close. Lowe's (LOW) was almost 6% higher after the home improvement retailer's 37% surge in fourth-quarter profit topped expectations. Rival Home Depot (HD) climbed 2% (see BW, 03/06/06, "Renovating Home Depot").

On the down side, Newmont Mining (NEM) tumbled close to 6% following a 67% dip in fourth-quarter earnings, which fell below analyst forecasts.

In technology, Hewlett-Packard (HPQ) jumped 4% as the computer maker unveiled plans to place photo-design units in 50 Wal-Mart (WMT) stores. Microsoft (MSFT) was almost 2% higher after the software giant said it's on target to release new Windows operating system Vista in the second half of 2006.

Leading a light economic calendar Monday, January new home sales unexpectedly tumbled 5% to 1.2 million units, says Action Economics. Markets will have more data to digest Tuesday, when existing home sales are expected to rebound 3.1% to 6.8 million units.

In other economic data Tuesday, fourth-quarter GDP growth is expected to be revised upward to 1.8%, says Action Economics. Consumer confidence is seen easing to 105.0. The Institute for Supply Management's February index of industrial activity is forecast to hold at Januay's level of 58.5.

M&A activity returned to focus Monday. General Electric (GE) and an Australian investment fund reportedly are contending for a big stake in the electricity-delivery business of energy company TXU (TXU).

Following days of reported negotations, U.K.-based National Grid (NGG) agreed to acquire natural gas distributor KeySpan (KSE) for $7.3 billion and an estimated $4.5 billion in debt assumption.

Also in deal action, a report suggested that Apple (AAPL) might snap up Disney (DIS) now that Steve Jobs has sold Pixar for a leading stake in the media and entertainment giant. The computer company was slightly lower, while Disney rose more than 1%.

Among other companies in the news, Merrill Lynch (MER) rose more than 1% after the investment bank announced a share buyback program of up to $6 billion. Citigroup (C) was little changed despite reports the SEC expanded its investigation into the bank's business in Argentina.

In the energy markets Monday, April West Texas Intermediate crude oil futures settled down $1.91 at $61, after news of a uranium-enrichment deal between Iran and Russia.

Prices for 10-year Treasury notes were lower at 99-10/32 with a yield of 4.59%, while 30-year bonds fell to 99-09/32 for a yield of 4.54%. Profit-taking set in as oil prices fell and stocks rebounded, says Action Economics. The yield curve was inverted.